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Over a beer, a friend was telling me that having MLPs in a retirement account is a bad idea. I don't know much about the tax implications but thought they could spit out the big dividends and grow in my Roth account. Similar question on REITs, thought having big dividend producers in a tax free growth account was good? Is this a bad idea, still have 20 years to go...
My understanding is that, generally speaking, it is a good strategy to have income-paying instruments (bonds, dividend-paying stocks, MLPs in oil & gas etc.) in tax-deferred accounts, while growth-oriented instruments should be held in taxed accounts.
Consult an investment adviser and tax expert for details in your particular situation.
The real question may be are the specific "Master Limited Partnership"(s) that you hold / are considering the type that will have high taxable returns OR are they type that has some potential for creating offsetting losses that are attractive to those with large tax liabilities -- http://www.alerian.com/MLPprimer.pdf (broken link)
My gut says that too many of these are not suitable for any investor that is not "pals" with the shady characters that too often get involved in this type of creative asset class birthing... Like any other firm / assest class there can be some real downsides among the boomers too: Eagle Rock Energy Partners,L.P, - Google Finance Energy Transfer Equity, L.P. - Google Finance
I heard that it is not a good idea to hold MLP.s in a roth and that it has something to do with tax treatment of unearned income. I am still trying to find more info. I am also trying to find if NLY or AOD are ok to hold in a Roth.
Without a really good explanation and frustrated with tax double-talk, I decided to make investments that I thought were appropriate for myself in accounts that I wanted to use. I have owned MLPs and Trusts in tax deferred accounts for years and will deal with issues if they ever come up. I pay taxes on withdrawals from the IRA's when appropriate and trade for my benefit and have not seen or anticipate any problems.
MLPs offer certain tax deferal advantages in their distributions, so if you put them into a tax deferred account you're eliminating the advantages. I can't remember all the exact details but it's because they're a partnership and you're receiving a distribution of income rather than a dividend. The distribution is partially sheltered from tax as a return of basis, and in turn reduces your basis in the investment. It basically deferes a portion tax until you sell. Anyhow, talk to a CPA if you're looking at making a substantial investment in MLPs.
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MLP's in a roth
